Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.

A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Table 1-1 provides an overview of the tax treatment of amounts received as a scholarship or fellowship (other than amounts received as payment for services). Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

Table 1-1.Tax Treatment of Scholarship and Fellowship Payments1

Do not rely on this table alone. Refer to the text for complete details.
AND you are... / THEN your payment is...
IF you use the payment for... / A degree
candidate / Not a
degree
candidate / Tax free2 / Taxable
Tuition / X / X
X / X
Fees / X / X3
X / X
Books / X / X3
X / X
Supplies / X / X3
X / X
Equipment / X / X3
X / X
Room / X / X
X / X
Board / X / X
X / X
Travel / X / X
X / X
1 Does not include payments received for past, present, or future services.
2 Payments used for any expenses indicated in this column are tax free only if the
terms of the scholarship or fellowship do not prohibit the expense.
3 If required of all students in the course.
Tax-Free Scholarships and Fellowships

A scholarship or fellowship is tax free only if:

  • You are a candidate for a degree at an eligible educational institution, and
  • You use the scholarship or fellowship to pay qualified education expenses.

Candidate for a degree.You are a candidate for a degree if you:

  1. Attend a primary or secondary school or are pursuing a degree at a college or university, or
  2. Attend an accredited educational institution that is authorized to provide:
  3. A program that is acceptable for full credit toward a bachelor's or higher degree, or
  4. A program of training to prepare students for gainful employment in a recognized occupation.

Eligible educational institution.An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.

Qualified education expenses.For purposes of tax-free scholarships and fellowships, these are expenses for:

  • Tuition and fees required to enroll at or attend an eligible educational institution, and
  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that do not qualify.Qualified education expenses do not include the cost of:

  • Room and board,
  • Travel,
  • Research,
  • Clerical help, or
  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
Reporting Scholarships and Fellowships

Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable.

If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.